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DirecTV, Comcast Disappoint Investors

November 04, 2005|Sallie Hofmeister | Times Staff Writer

The slugfest over customers taking place between the nation's cable and satellite TV providers was clear Thursday when each industry leader disappointed Wall Street.

El Segundo-based DirecTV Group Inc. swung to a third-quarter profit of $95 million, adding 1 million subscribers. But the satellite company's stock declined because of a record customer turnover rate and the high cost of keeping subscribers from switching to competitors.

At the same time, Philadelphia-based Comcast Corp. lost 46,000 basic cable customers, its third straight quarter of losses. Analysts attributed these defections to Comcast's delay in entering the digital phone business, which other cable providers consider a magic bullet to keep customers from jumping to satellite.

"Comcast was late to the party, and it's costing them," said Craig Moffett, an analyst at Sanford C. Bernstein.

Comcast's performance was particularly distressing to Wall Street after two big rivals of the nation's largest cable operator posted better results.

Time Warner Inc. and Cablevision Systems Corp. both added subscribers in the third quarter by bundling their cable television service with an inexpensive digital phone offering. The phone sales helped lift the two companies' revenues at a faster pace than Comcast grew.

At Comcast, revenue increased 9.4% in the third quarter to $5.6 billion, while net income was nearly flat at $222 million, or 10 cents a share, up from $220 million, or 10 cents, a year earlier. That failed to meet the consensus profit estimate of 14 cents a share among analysts surveyed by Thomson Financial.

Comcast shares fell $1.44, or 5%, to $27.36. Some investors also were frustrated that Comcast was investing heavily instead of showing bigger profit. Comcast said it would increase capital spending to $3.5 billion this year, up from a previous forecast of $3.2 billion to $3.3 billion, to meet demand for services such as digital recorders.

"The market obviously sees forms of competition in the future," Brian L. Roberts, Comcast's chairman and chief executive, said in a conference call with analysts Thursday when asked about his stock's lackluster performance this year.

Many analysts favor Comcast over DirecTV because of its long-term prospects. The satellite company, which is owned by News Corp., has provided customers with a premium television-viewing experience.

But satellite technology is unable to deliver two-way services such as Internet broadband and telephone, putting it at a disadvantage to cable providers as well as to telephone carriers that are entering the TV business.

To fill its broadband void, DirecTV probably will have to pay handsomely because the needed spectrum for such services is scarce, analysts said.

DirecTV's third-quarter net income was 7 cents a share, contrasted with a loss of 73 cents a share a year earlier, when the company recorded a $900-million charge for a shuttered broadband project. The results were above analyst profit expectations of 5 cents a share, according to Thomson.

Quarterly results included a $14-million charge from Hurricane Katrina losses. Revenue grew 13%, to $3.23 billion.

DirecTV's average monthly churn -- the rate of customer turnover -- jumped to a record 1.89%, up from 1.82% a year earlier, as the company cut off nonpaying customers who signed up when it loosened credit standards last year to drive subscriber growth. The company said it had tightened its credit policy.

As a result, DirecTV added 263,000 net new subscribers, compared with 456,000 in the year-earlier quarter.

DirecTV shares fell 29 cents, or 2%, to $14.27.

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